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How the chancellor can support SME housebuilders in the Autumn Statement.
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David Cracklen, Director of AJC Group, discusses the challenges facing SME Housebuilders and what help would be welcomed in the upcoming Autumn Statement. 

“Small and Medium-sized Enterprise (SME) housebuilders have always, and always will be an essential part of the housebuilding industry, and play a pivotal role in the delivery of new homes in the UK. In the 1980s, it was reported that SME housebuilders produced 40% of all new homes, however today the statistic is significantly lower, and has been reported to be less than 12%.*

Unfortunately, recent figures from the NHBC show that the entire housebuilding industry has slowed down, with new home registrations dropping by more than half in the third quarter of this year .* With the challenges now facing the SME housebuilding industry, many are struggling to produce the output they once did. The number of SME housebuilders has decreased by 80% over the last 30 years, which could be a reason for why the UK continues to face a housing crisis, as well as falling short of housing targets year on year. Given the vitality of the future of the industry, and provision of homes for the country, more needs to be done to support them.

The Government outlines that there will be help for small businesses in the upcoming Autumn Budget, but there needs to be specific support aimed at those in the housebuilding industry, to help reduce the challenges they are facing. With the right support and legislation for SME housebuilders, it could drastically improve housing shortages in the UK.

David Cracklen, Director of AJC Group, said: “The challenges facing SME housebuilders are more acute than ever, with dramatically increased costs and delays, caused in part, by obstacles the Government has introduced. Unlike national large-scale housebuilders, SME housebuilders face challenging cash flow pressures and are having to be more and more cautious than ever when appraising new projects.

“Just submitting a planning application alone can result in costs spiralling, and then having to consider the increasingly complex accompanying list of requisite professional reports, can end up the whole process costing hundreds of thousands of pounds. With the added ongoing delays caused by the woefully underfunded planning system, it means that it can be years rather than months that any investment is either released or relinquished. Moreover, from the 6th of December this year, the Government has announced that planning submission costs are going up by 35%. Meaning upfront costs are further increased to crippling degrees after planning, due to the additional costs, such as water neutrality, section 106, Biodiversity Net Gain, CIL contributions and the list goes on…

“Housing supply still remains low and targets are not being met. The vacant pieces of brownfield land in town centres are ripe for development, and it’s an opportunity for SME housebuilders to shine. Yet, the planning system is causing significant delays, meaning many SMEs are struggling to secure land for development. It is more of a financial risk than ever to decide to go forward for a site, for it only to be potentially rejected by the increasingly costly criteria that are currently in place.

“In addition, many of our affordable housing clients feel at risk too. They realise SME house builders have been closing down left right and centre in recent years, due to the accelerated costs and unattainable planning hurdles. The combined effect is that as a country, we are delivering less new affordable homes for those in need than ever before. This is shameful.

“The Government desperately needs to provide support for SME housebuilders, if they want to improve the current housing shortages and build more new homes. Looking at our European neighbours could provide some inspiration, and how to provide clients such as housing associations or councils with more peace of mind when working with a smaller developer. In Spain for example, the Government has acted as underwriter for mortgage deposits for new builds, so that if the company goes bankrupt, the purchaser is better protected. Currently, the NHBC does offer insolvency cover, but only for businesses of a certain size or financial value. Potentially it would be beneficial for the Government to offer an insolvency cover for SME contractors in this country to give some comfort to their clients.

“One obvious and additional change that would help all housebuilders, would be to allow any validated planning applications to proceed without being ‘undone’ by new policies or rulings which post-date validation. If a planning authority introduces a new or adopts a new guidance note, it should only apply to any new planning applications which have not been validated, otherwise SME housebuilders are just chasing their tails.

“If we look at the recently enforced new policies on nitrates, neutrality or biodiversity net gain for example, many SME housebuilders could be several years and hundreds of thousands of pounds into a planning application, only to be told that it is no longer valid due to new policy guidance, without any notice or forewarning. It is simply unfair and it is the SME housebuilder who simply cannot afford these added pressures on our finances.”

Posted on: 20th November 2023
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